The End Of Doom?

September 2016

There has been much talk about an apparent slowdown in Dubai and UAE’s property market. But is the slowdown fear warranted? What options does the real estate market have to fall back on? Will investor demand help pick up the slack? Three property experts evaluate the current market conditions and chart the road ahead

The year 2009 – a not so distant memory, if you’ve been keeping a close eye on Dubai property market! Much has changed since then, so to say, except a lingering and veiled doubt in many people’s minds who find it hard to reconcile the bounce-back in the property market in UAE, especially Dubai. Compared with the 2009 slowdown there’s definitely been a big rebound. But how sustainable is it? They ask! According to real estate consultancy firm CBRE, while Dubai’s economy has continued to outperform its neighbors buoyed by its diversified economic base, the devaluation of major currencies ‘against the US dollar, spurred by global economic uncertainty, has impacted investor sentiment in the Emirate’s real estate market.
So where will the much talked about ‘slowdown’ in Dubai property market lead to and how it will impact profitability of developers? Wealth Monitor asked real estate experts what they make out of the numbers coming out regarding realty market in Dubai and the UAE. The questions asked included: With Dubai’s and UAE’s residential property rents and sales softening, when do you see market bottoming out? Is Dubai and UAE property market turning more towards renters’ and buyers’ market, (than owners/sellers) given the softening rates? Will the recovery in Dubai and UAE property market remain elusive until the oil prices gather momentum? Where do you see the market now and going into 2016 and 2017? What’s the next phase of growth in Dubai real estate market?
And here’s what they had to say…

Sunny Tyagi, Client Manager, SPF Realty

Market Bottoming Out
The price corrections happened in Dubai property market for the past few months. Now the market is on the road to recovery from it. The prices per square foot in Dubai were stable quarter-on-quarter, with minor variations within individual areas. Rents across the market were generally low by two percent. We have not witnessed any major shift in prices for the residential property sale from first and second quarters of the year. The rental prices are now in the phase of bottoming out as landlords are marketing their properties at more competitive prices and agreeing for multiple cheque options to avoid having vacant properties.

Check On Speculators
Dubai economy is not solely dependent on oil revenues and its property sector is now driven by end-users with a strong government check on speculators, who manipulated the market in the past. Oil importers in the UAE’s catchment areas such as India, the Europe and some parts of Africa will benefit from the collapse in oil prices. This, in turn, will lead to good demand for investments in non-oil sectors in Dubai such as real estate, logistics, tourism, hospitality and transportation with investors from India and Pakistan traditionally purchasing most property in the UAE, they could gain from the downturn in crude prices.

Changes To Reflect Soon
The markets on the road to recovery and we believe these changes will start reflecting from late 2016 or early 2017. The fundamentals of Dubai are very strong with tourism, the airline network and investment in local infrastructure. Dubai’s property prices are lower compared to global hub cities such as London, Mumbai, Singapore and Hong Kong. The new low-price environment offers a great opportunity for consumers to benefit from not only the asset but the price appreciation of the asset when delivered.

Low Oil Prices To Dampen Sentiment
Amid continued global economic uncertainty driven by the slowdown in the number of key source markets, investment security and household affordability will remain key considerations for more prospective buyers in the Dubai’s property market. At the same time, low oil prices will continue to dampen business sentiment amongst the local investors. Overall residential sale rates are envisaged to decline further by 3.0% to 5.0% over the remainder of 2016, with the upper-end and luxury market segment leading the fall, while the mid-markets are expected to see lower magnitudes of price declines.

Uptick From 2017
The speculative demand is poised to remain sluggish amidst tighter regulation imposed by the government, mortgage loan caps introduced by the Central Bank, and overall uncertain investment sentiment which is one of the key pillars of Dubai’s residential market growth.
Given the reasons above, we see possibility for an uptick in residential sale and lease rates only starting from 2017 driven by more balanced supply and stronger inward investment volumes due to both, an expected oil price recovery and local market dynamics stabilization.

Towards Buyer’s Market
We start to see developers offering back-loaded payment plans and guaranteed returns on funds invested during construction of some of their developments. We may also envisage some developers even pricing their units at market acceptable levels that would allow them to regain market share despite prevailing cooling environment and fairly muted sentiment. A steady decline in prices and more flexible terms offered by the owners, could indicate a shift from predominantly developer’s market towards buyer’s market. However, it is difficult to predict whether this trend will persist with the return of market confidence.

Haider Tuaima, Research Manager, ValuStrat

Market Has Plateaued Out
ValuStrat research has indicated over the past year that Dubai’s residential market has reached a plateau in prices, with early indications of an early recovery in some areas, signaling possible signs of bottoming-out in property values across the VPI (ValuStrat Price Index) coverage locations. As of the first half of 2016, nine out of 26 locations monitored have seen capital appreciation between 0.6% and 2.3%on a quarterly basis. Rents also began to rise, 2.8% quarter on quarter.

Early Signs Of Recovery
ValuStrat research has indicated that some locations have seen early signs of recovery, other locations are still witnessing marginal declines, this has resulted into a cautiously optimistic buyer’s market. For most locations, end-users and investors alike have had the upper hand in negotiating the right price, mitigating any risk of possible marginal declines in the near future, while wait-and-see buyers started to see their potential future property investment options become more limited.

The Trough Phase
ValuStrat analysis has found that after a year of relative stability, the current cycle has approached the trough phase. Given current economic and geo-political conditions, it’ll be a matter of time when all locations begin to witness positive growth at various levels, the VPI (ValuStrat Price Index) reports have already indicated early signs of recovery in some locations.

Wrapping Up
There’s no point worrying about Dubai property market, unless some black swan event takes place. As many research reports would have us believe, average residential rental and sales rates continue to descend across Dubai, but performances are highly fragmented by location. But much as it is impossible to predict black swan events, so is difficult to generalize the property market trends in Dubai and the wider UAE.